T.Y.B.COM | SEM6 | Economics | Tax policy in India - part 2 | VNSGU

SAILENT FEATURES OF THE INDIAN TAX SYSTEM:

1. Persistent rise in the tax revenue of both the central and the state governments.
2. Tax revenue occupies a significant place in the budgetary operations of the government Revenue from this source far exceeds non-tax revenue receipts and capital receipts. Likewise, it is an important source of financing revenue expenditure.
3. Increase in tax - G.D.P. ratio from 6.5 percent in 1950-51 to about 16.6 percent in 2015-2016 still it is much less as compared to many developed countries of the world where it is in the range of 30 percent and above.
4. Larger share of indirect taxes in the total tax revenue.
5. Trend towards lower tax rates - both direct and indirect - in recent years.
6. Growing share of direct taxes in the country's gross domestic product from 1.9 percent in1990-91 to about 5.8 percent in 2014- 2015.
7. Shift in the relative importance of direct taxes in relation to indirect taxes. The relative share of direct taxes in the total tax revenue was 16.3 percent in 1990-91: this, however, to increase to about 55 percent in 2015-2016
8.Broadening of the tax-base in respect of direct taxes in recent years.

MAIN SHORTCOMINGS OR LIMITATIOM OF INDIAN TAX SYSTEM:
1. Tax revenue as a proportion of the gross domestic product has all along been at a low figure of about 16.6 percent in 2015-2016 as against the range of 30 percent and above in most of the developed countries of the world.
2. Indian tax system has been operating at a very narrow base, particularly in respect of direct taxes. The number of income tax payers constitute hardly about one percent of the total population of the country In the service sector, most of the services are still outside the tax net.
3. Inter-sectoral imbalance - tax burden on non-agricultural sector is much higher than the agricultural sector, in fact, it has been said thal agriculture is the least taxed sector of the economy. Likewise the actual incidence of indirect taxation is higher on the urban sector as compared to the rural sector.
4.There was, for a long time the predominance of indirect taxes and as these taxes generally fall on the poor, the Indian tax system may be regarded as ubiquitous and regressive.
5. There are mounting tax arrears both in respect of direct and indirect taxes.
6.There is also a high incidence of tax evasion which has contributed to the rise of a parallel economy and causes a continuing loss of revenue to the government.

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